By Michael Aneiro

In today’s installment of the never-ending fall of junk bond yields, the average yield across the speculative-grade universe has dropped below the 5.5% threshold for the first time ever, entering this week at 5.496%, according to a benchmark Bank of America Merrill Lynch index.

A year ago it was 7.22%. Prior to 2013, it had never fallen below 6%, and prior to 6 months prior to that, it had only rarely fallen below the 7% barrier, and those forays were shallow and short-lived. But with the Fed-generated wind at its back, this market continues to breeze past previous limits. Martin Fridson of financial research firm FridsonVision points out that the average high-yield risk premium, or spread over Treasuries, is far from its all-time low but the market still looks “very rich”:

Clearly, the extremely low yield… is a function of extraordinarily low Treasury yields, rather than a historically narrow spread. The present spread of +478 bps is nearly double the all-time low of +241 bps on June 1, 2007. That being said, the high yield market is very rich at present. Our fair value estimate of the spread is +656 basis points or 178 basis points more than the actual spread. The gap represents an extreme of 1.3 standard deviations.

Investors are stretching for yield as a consequence of the Fed’s low-interest-rate policy. They realize that speculative grade bonds do not offer good value at the present spread, but feel they are protected against losses as long as the Fed sticks to its guns. Unfortunately, they will not all manage to be the first one out the door when the Fed decides to raise rates.

And, naturally, the market continues to gain early this week. Looking at the two main high-yield ETFs Monday, the iShares iBoxx $ High Yield Corporate Bond Fund (HYG) is up 24 cents cents to $94.69, and the SPDR Barclays Capital High Yield Bond ETF (JNK) is up 8 cents to $41.19.